Case 17.1
STONERIDGE INVESTMENT PARTNERS, LLC V. ATLANTA, INC.
Supreme Court of the United States
552 U.S. 148; 128 S. Ct. 761; 2008 U.S. LEXIS 1091 [January 15, 2008]
FACTS:
Charter Communications operates cable companies throughout the United States.
Both Scientific-Atlanta and Motorola supply Charter with digital cable converter boxes that Charter
provides to its customers.
In 2000, Charter became concerned that it would not meet cash flow projections causing it to miss
the financial estimates Wall Street established.
To remedy this shortfall, Charter arranged to overpay Scientific-Atlanta and Motorola by the
amount of $20 for each converter box.
The deal was conditioned on these companies purchasing advertising from Charter in the amount
equal to the overpayment.
Although the transaction had no economic impact, Charter recorded the advertisement purchases
as revenue and capitalized the purchases of the converter boxes.
This scheme allowed Charter to fool its auditor and to create financial statements that appeared to
meet expectations by increasing cash flow by about $17 million.
Purchasers of Charter stock sued Charter, Scientific-Atlanta, and Motorola under the Securities
Exchange Act of 1934.
PROCEDURE: The District Court and the Eight Circuit Court of Appeals ruled in favor of Scientific-
Atlanta and Motorola on its motion to dismiss for failure to state a claim on which relief can be
granted.
ISSUE: Whether Section 10(b) of the Securities Exchange Act of 1934 provides for a private cause of
action against third parties?
RULE: “In a typical Section 10(b) private action; a plaintiff must prove (1) a material misrepresentation
or omission by the defendant; (2) scienter, (3) a connection between the misrepresentation or
omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission;
(5) economic loss, and (6) loss causation.”
REASONING:
1. The Section 10(b) implied right of action does not extend to aiders and abettors. Respondents’ acts
or statements were not relied upon by the investors, and as a result, liability cannot be imposed
upon respondents.
3. Respondents had no duty to disclose, and their deceptive acts were not communicated to the
did.
ADDITIONAL INFORMATION:
So that Arthur Anderson (the auditing firm) would not discover the link between Charter’s
increased payments for the boxes and the advertising purchases, the companies drafted
documents to make it appear the transactions were unrelated and conducted in the ordinary